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Wheelings and Dealings: Behind Ericsson's Red Bee Media Buy

TMCnet Feature

May 13, 2014

Wheelings and Dealings: Behind Ericsson's Red Bee Media Buy

By Tara Seals
TMCnet Contributor

Ericsson (News - Alert) has completed its acquisition of Red Bee Media, the media services company headquartered in the U.K. The move expands Ericsson’s list of broadcast customers significantly and propels the telecom infrastructure giant further into the TV and media business—where it has been focusing efforts of late. The move signals a new page for Ericsson as it seeks to further diversify from its telecom, software and wireless gear heritage into higher-margin services arenas.

Ericsson announced its intention to buy Red Bee from Creative Broadcast Services Holdings last July, for an undisclosed sum. The company began life as an arm of the BBC—from 2002 until 2005, it was BBC Broadcast Ltd, a commercial arm of the public broadcaster. It was sold in 2005 to private equity consortium McQuarie for £166 million ($227.5 million U.S.) and became Red Bee Media, with a focus on advertising and marketing creation, video and audio metadata for program listings, subtitling and translation, asset management and interactive TV services (including encoding for the BBC’s iPlayer).

Its clients are a laundry list of the heavy hitters in Europe: the BBC, BSkyB, BT (News - Alert) Sport, Canal Digital, Channel 4, Channel 5, Discovery, EE, ITV, Orange, RTE, UKTV, UPC, Virgin Media and others.

The BBC relationship in particular is an important one, considering that the Bee spends around $275 million per year on distribution and is one of the world’s top media brands. Red Bee has an exclusive 10-year playout and distribution contract with the BBC, worth an estimated $685 million.

In addition to the client list, Ericsson has gained 1,500 employees as well as media services and operations facilities in the U.K., France, Germany, Spain and Australia—an important brain-trust for strengthening Ericsson's broadcast services business. The Swedish giant will now have more than 5,000 employees in the UK, with close to one-third of them working in broadcast services, creating what the company calls a “major global media hub for Ericsson” in the UK, targeting content owners, broadcasters and TV service providers.

Ericsson’s broadcast aspirations technically began in 2007 with the purchase of Tandberg (News - Alert) Television for $1.4 billion—a decision that propelled it into the broadcast compression technology and services business. It shortly after signed a broadcast services deal with C More (formerly Canal+) in the Nordic region.

It has steadily beefed up its pay-TV and service provider portfolio since then, notably when it comes to video compression technologies to enable HDTV, TV Anywhere and UltraHD 4K TV. It picked up media stalwart Technicolor in 2012, adding broadcast management and playout to the mix; and last year it also bought the Microsoft Mediaroom business, thus gaining an immediate market leadership position in the IPTV middleware space with operators like AT&T (News - Alert). At NAB last year, it launched its broadcast services unit, tapping former Red Bee Media commercial director Ian Brotherston to head up the U.K. division.

As broadcast and pay-TV continues to move into the digital and multiscreen realm, Ericsson’s heritage in communications networks can be brought to bear. Layering in services to provide an end-to-end media enablement approach for a broader range of stakeholders can only be a good thing for the No. 1 infrastructure vendor.

At the annual shareholders’ meeting in April, Ericsson CEO and president Hans Vestberg (News - Alert) talked about how the company's sales split across hardware, services and software has changed dramatically from 1999 to 2013. Since 1999, Ericsson has transformed its sales from 73 percent hardware and 27 percent software and services, to the current level of 34 percent hardware, 43 percent services and 23 percent software. The move into service is a margin-booster for the company, and is driven in part by the need to create intelligent networks that rely on software and services to deliver agility to operators (and consumers).

Overall, he said that a new, all-IP, applications-centric industry paradigm requires Ericsson to continuously transform to stay relevant, and pointed to Red Bee as filling in an important portfolio gap as media and content take center stage for end users’ communications needs.

"Industries and companies are using broadband on an industrial scale to improve processes,” he said. “People are using connected devices, to help them be healthier and stay closer to loved ones. It is our job to build the foundation to make all that possible."

Edited by Maurice Nagle

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